What to consider when joining the ETS for forestry

Forest carbon and New Zealand Units

You may be thinking about registering your forest in the ETS or have recently registered. If you register eligible forest in the ETS (known as “post-1989 forest land”), you could receive New Zealand Units (NZUs or units).

Once you receive these units, you have options. You could hold onto them. You could decide to sell them. This may be what attracted you to the scheme in the first place.

However, be aware there are conditions attached when you receive these units. The units received are based on the amount of carbon that is stored in the forest over time. If you deliberately reduce the carbon in this forest (for example through deforestation), there are ETS rules you’ll need to follow. You may need to give units back to the government (known as “surrendering” units).

Find out more about earning and surrendering units

Deforesting and the ETS

Stock-change accounting and surrendering units after harvesting

Make sure joining the ETS makes financial sense for you

Before you register an eligible forest in the ETS, make sure that joining the scheme makes financial sense for you. There’s a risk that it may not be cost-effective to register, depending on your circumstances. Some forest owners receive enough units to make it worthwhile to register their land in the ETS. Others don’t.

Make sure your forest is eligible before applying

If you invest in establishing or buying a forest and plan to register it in the ETS as post-1989 forest land, make sure the land is eligible. If your land is not eligible, it cannot enter the ETS. We will not refund your application fee, or any costs incurred, if your application to register is unsuccessful because your land is not eligible.

To be eligible to register, the forest must meet, or will meet in future:

• size and crown cover requirements in the definition of “forest land” in the rules for the ETS
• the definition of eligible post-1989 forest land (based on when there was and wasn’t forest on the land).

Find out the size and crown cover requirements for forest land in the ETS

More about the eligibility requirements for post-1989 forest land

Making sure mapped land is eligible

Joining the ETS

Processing applications to register in the ETS can take time

You can’t submit an emissions return to claim units until your application to register post-1989 forest land is successful. Processing these applications can sometimes take us several months.

Units for forestry in the ETS are claimed for periods of time called mandatory emissions return periods. You cannot claim any units for a mandatory emissions return period if:

• your land is not in the ETS during the period
• you submit shortly before the end of a mandatory emissions return period and your application is not processed until after the end of that period.

Find out more about emissions returns and mandatory emissions returns periods

When responsibility for land in the ETS changes

When post-1989 forest land enters the ETS, the person, people, or organisation that registered with the land will be responsible. If the responsibility for the land in the ETS changes, the forest management choices made by previous land and forest owners can affect subsequent owners. This could apply if, for example:

• the land changes hands because it is sold or inherited
• a registered forestry right or lease transfers to another party or expires.

If you are thinking about investing in land and some of it is registered in the ETS, make sure you understand what you would be responsible for.

Find out more about general responsibilities in the ETS

What happens when forest land ownership or land agreements change

Specific risks to look out for

Some of the risks that could arise when there’s a change in who is responsible for land in the ETS include the following.

• The party that originally registered the forest in the ETS could keep the units. A subsequent owner could then be liable to surrender units if they want to deforest and/or remove the land from the ETS later.
• In some situations, if responsibility for the land in the ETS transfers to another party, they can become liable to pay for the emissions from harvesting that occurred before they owned the land or forest. Also, ETS forest land can be considered deforested after many years if the forest established after harvesting doesn’t meet the stocking, size and height requirements to be considered forest land in the ETS.
• If forest land is in the ETS, and the responsibility for it in the ETS transferred to someone else, then they were supposed to notify us about this. If nobody notified us and we find out, the parties involved could be fined.
• If there were multiple transfers that we weren’t told about and we find out, the party who ends up with the forest land could be responsible for surrendering units for emissions that occurred before they owned it.

These rules can be complex. If in doubt, you could consider hiring a forestry consultant who is expert in the ETS to help you. You also have the option to appoint them as a representative to complete ETS tasks for you.

Find out more about appointing a representative in the ETS

What happens when forest land ownership or land agreements change

What’s considered deforestation in the ETS

Damage to forest land during natural events

Natural disasters and other accidental events can damage forest land. Where this damage fells, burns, kills, uproots, or destroys the forest, the forest is treated as cleared in the ETS.

Permanent damage

If your forest land is damaged permanently by a natural event and this will permanently prevent you from re-establishing forest in the area (for example, after a landslide or if a river changes course):

• you will not be responsible for paying units to cover the emissions from the damaged forest
• we will issue a notice confirming that this permanently damaged land is not considered to be in the ETS.

If your land becomes permanently damaged, contact us. We'll put you in touch with someone who can advise.

• Freephone 0800 CLIMATE (0800 25 46 28) and select option 1
• Email us forestryets@mpi.govt.nz

Temporary damage

If your forest enters the ETS and suffers damage from natural or accidental events, you can apply to pause carbon accounting. This is called a "temporary adverse event suspension".

If your application is approved, you won’t need to pay units for the forest land cleared by the damage, as long as you replant it.

Find out more about what to do if you have temporary damage to your forest land

Participating in the carbon market

If you earn units after registering post-1989 forest land, you can participate in New Zealand’s carbon market. You can choose to keep your units or sell them.

However, before you sell any units, it’s a good idea to think about the financial implications. There are risks if you decide to sell your units.

• The price of units can go up and down. The price of units can change significantly, depending on supply and demand.
• You may not find people willing to buy your units at the price you want, particularly if you are trying to sell small quantities of units.
• You may not easily find units for sale at a price you consider acceptable. Some sellers also charge premiums.
• The decisions you make and the things that happen to your forest may mean that you must surrender units in future. For example, if you decide to deregister from the scheme or if you deforest your land. If you sell units you received for your land, and you end up having to buy units later to surrender, these may have a higher price. You could end up losing money.
• If you sell your units and later decide to sell the land – if the buyer insists that you provide the units with the land, and you can’t find any to buy, the value of the sale may decrease.

If you are entering an agreement to sell units based on units you anticipate receiving in the future, make sure you:

• estimate the number of units you’ll receive correctly so that you can honour your agreement
• allow time in case the processing and verification of your emissions return takes longer than expected.

Read more about earning and surrendering units

When the number of units you receive doesn’t meet expectations

You may receive a different number of units compared with your expectations if, for example:

• you have 100 ha or more of forest land in the ETS and the participant-specific tables that we generate based on data collected from your forest are different from what you expected
• there are future changes to the legislation, such as updates to the tables in schedule 4 of the Climate Change (Forestry) Regulations 2022 or changes to the carbon accounting methods.